I'm about to do a series of boardroom lunches with business leaders, and so I thought I’d share with my Yahoo readers what I will be saying about the economy —both here and abroad — and the stock market.

Sure the year started a month ago, but the real business year starts in February, though the stock market year always kicks off in the first month when the so-called January Effect often brings a nice and consistent rise for stocks.

Also there are many who argue that if January is up, then the market will be up for the year. This generality I will argue will be on the money in 2013.

Economy critical to stocks

Market stuff can wait — let’s sum up the economy first as this will be critical to what I say about stocks anyway.

I think the economy will grow in the 2 per cent band, being in the low end in the first half but getting better in the second half. As unemployment needs 3 per cent growth to push down, I expect the jobless rate to go to 5.6-5.7 per cent, but there are others who think 6 per cent is not out of the question.

On interest rates, few economists expected a cut in February, but most expect at least one this year, and so that’s why I have been arguing that a cut in time might save a lot more later in the year.

The economy is definitely on the improve with house prices, business, as well as consumer confidence, improving, but we’re only starting to pick up. We’re not going gangbusters and our dollar is too high, while our inflation rate is in the middle of the target band of 2-3 per cent, so a cut is doable and should be done!

I like Westpac’s chief economist Bill Evans’ take on the matter. He pointed out that the Reserve Bank has cut the cash rate by 175 basis points since October 2011, but the consumer confidence index is only 3.5 per cent higher since that time. In January, it rose just 0.6 per cent to 100.6.

“Indeed, following the first rate cut in November 2011, the Index surged by 6.4 per cent to 103.4 in November 2011,” he says.

Among the data

If you need more convincing that a rate cut makes sense now, then consider these:

• The Performance of Manufacturing index fell by 4.1 points to 40.2 in January. It was the eleventh month of contraction.

• The RP Data – Rismark Home Value Index showed capital city home prices rose by 1.2 per cent in January and are up 1.8 per cent on a year ago, which is a pathetic rise and shows how the housing sector is barely walking let alone running wildly despite 175 basis points of rate cuts since October 2011!

• The average credit card balance fell by a record 2.3 per cent over the year to November.

Positive January

To the stock market now, and shares were off to a great start with the rally that began in June last year continuing to roll on. Coming up in the US, however, are events that could derail the optimism. And don’t forget left field threats!

The S&P/ASX 200 rose 4.94 per cent over January to 4878.8. Since the last low point on June 4 when the rally began, it’s up 22.4 per cent.

Over in the US, the Dow gained 5.77 per cent over January to 13,860.58 and is 14.5 per cent higher since June 4 last year. The S&P 500 put on 5 per cent over the month to 1498.11, and has risen 17.2 per cent since June 1.

And on Friday 1 February, the Dow jumped 149.21 points to 14,009.79, the highest result since October 2007!

Global good news

I believe the good economic news coming out of China and the USA, as well as some surprisingly positive outlook statements from the likes of the European Central Bank (ECB) and even the German Chancellor, Angela Merkel, makes me more optimistic for stocks in 2013.

Of course this has been driven by generous central banks and recently the new Japanese Government joined the quantitative easing party. This will help Japanese as well as world economic growth, as well as stock prices.

Market outlook

Many forecasters have bumped up their S&P/ASX 200 index forecast from 4800 to 5200 and even as high as 5500.

One-time bear, Matt Kidman of Wilson Asset Management, thinks the market could be up 20 per cent this year. He says history shows when markets turn from a bear to a bull market there can be 40 per cent plus rises!

There will be dramas — serious ones such as our Federal election and stupid ones such as Silvio Berlusconi doing well in Italian polls and bond yields rising — which could hurt stocks for a time, but I will see this as a buying opportunity.

The ECB boss summed up the year ahead succinctly in predicting that the negative contagion, which has dominated economies and markets since the GFC, will give way to a positive contagion. That was so nicely said, I wish I had said it!